Appendix — American Oil Co. v. Arnott

In Tue

Supreme Court of the Anited States

Ocroser TERM, 1980

No. €9-1357

THE AMERICAN OIL COMPANY,

Petitioner,

vs.

GEORGE ARNOTT,

Respondent.

APPENDIX TO

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE EIGHTH CIRCUIT

lnnirhevt 3. GAllo

MAURICE R. GLOVER

200 East Randolph Drive

Suite 2106

Chicago, Illinois 60601

(312) 856-7938

TIMOTHY J. NIMICK

WOODS, FULLER, SHULTZ & SMITH

310 South First Avenue

Sioux Falls, South Dakota 57102

Attorneys for Petitioner

Midwest Law Printing Co., Chicago 60601, Financial 6-3988

TABLE OF CONTENTS

PAGE

Opinion of the Court of Appeals ...................... la

Order of the Court of Appeals Reducing the Judgment

of the District Court Pursuant to Remittitur ............. 37a

Order of the Court of Appeals Denying Petition for

Rehearing En Bane ; 39a

Order of the Court of Appeals Denying Petition for

Rehearing 40a

Order of the District Court Denying Motion for Judg-

ment Notwithstanding the Verdict or a New Trial

and Memorandum Decision ..... 4la

Judgment of the District Court for the District of South

Dakota ae 43a

Legislative History of South Dakota Franchise Act:

Original Senate Bill No. 210 as Introduced, Forty-

Ninth Session, Legislative Assembly, 1974 (on

File as Original Sen. Bill 210 in 8.D. Legislature) 45a

1974 South Dakota Senate Journal Page 554 .......... 50a

1974 South Dakota Senate Journal Pages 1086-7 .... 50a

1974 South Dakota House Journal Pages 1260-1 .... 5la

Sherman Antitrust Act, §1, 15 U.S.C. §1 (1970) .200000... 53a

The Rules of Decision Act, 28 U.S.C. §1652 000000. Jo... 53a

South Dakota Compiled Laws:

SDCL 53-3-5. Assumption of Obligation by Ac-

ceptance of Benefits 53a

SDCL 57-7-37 thru 57-7-42. Allocation of Supply .... 53a

SDCTI. 57-24-16 & 18. Bulk Sales Act ......0022.22... 55a

South Dakota Franchise Act as Enacted, February

BT ERs Ws CE FONT ccvicscsnnnentintocsonsnseniesiniomasenoiins 56a

In THE

Supreme Court of the United States

Ocroser Term, 1980

No.

THE AMERICAN OIL COMPANY,

Petitioner,

vs.

GEORGE ARNOTT,

Respondent.

APPENDIX TO

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE EIGHTH CIRCUIT

—la—

UNITED STATES COURT OF APPEALS

FOR THE EIGHTH CIRCUIT

No. 79-1150

GEORGE ARNOTT,

Appellee,

Vv.

THE AMERICAN OIL COMPANY, a corporation,

Appellant.

Appeal from the United States District Court

for the District of South Dakota

SUBMITTED JUNE 16, 1979—FILED OCTOBER 24, 1979

Before HEANEY, BRIGHT and STEPHENSON, Circuit

Judges.

STEPHENSON, Circuit Judge.

Defendant-appellant, American Oil Company (Amoco),

appeals from a judgment entered against it by the dis-

trict court! upon a jury verdict of $100,000 (trebled by

the court under the antitrust laws to $300,000 plus at-

torney fees and costs) and punitive damages of $25,000.

Numerous issues are raised, including insufficiency of

the evidence to create submissible jury issues on plain-

tiffs claims. We affirm on condition that plaintiff-

appellee, George Arnott, file a remittitur of all damages

exceeding $125,000 plus interest and costs..

1 The Honorable Fred J. Nichol, Chief sndge, United States

District Court for the District of South Dakota.

—2a—

This action involves the relationship between a major

oil company, Amoco (often referred to in the record as

Standard Oil), and George Arnott, one of its service sta-

tion dealers. On August 6, 1973, Amoco terminated Ar-

nott as a Standard Oil dealer by terminating his lease

and evicting him from the service station. Arnott’s com-

plaint alleged, and the jury found in answer to special

interrogatories accompanying the general verdict, that

(1) Amoco was guilty of false and frauc :lent represen-

tations in inducing Arnott to execute the service station

lease agreement;? (2) Amoco breached the fiduciary duty

owed to Arnott by terminating his lease without good

cause and by not dealing with Arnott in good faith dur-

ing the term of the lease agreement; (3) Amoco was guil-

ty of a retail price-fixing combination in violation of the

antitrust laws; and (4) Amoco breached its promise to

pay certain legal fees and expenses in the amount of

$393.75 incurred by Arnott in a state court action in-

volving a suit brought by Amoco against Arnott and the

former lessee of the service station in question.®

I. Facts.

The record when viewed most favorably to the jury

verdict for Arnott discloses the following. In October

1971 Arnott was operating a Standard Oil station in

Minneapolis, Minnesota,t when he was approached by

2 Arnott also claimed that during the operation of the lease

agreement Amoco misrepresented the benefits to be received

by Arnott from the installation of a carwash.

$ In instructing the jury the court stated: “This is not dis-

puted by the plaintiff (sic).” No further reference is made to

this $393.75 item until Amoco in its reply brief complains that

the court elected not to charge the jury on this issue and thus

the judgment should be reversed. Earlier in the trial

proceedings Amoco’s counsel indicated there was no dispute

about this item. Under the circumstances we pretermit any

further discussion of the same.

4 Prior thereto Arnott, after attending a two-week ie par

school sponsored by Amoco, had operated Standard Oi

stations at Lake Preston, Wessington Springs, and Huron,

(Footnote continued on following page)

—3a—

Amoco’s sales manager for the Sioux Falls district, Dick

Lucas, about operating a Standard station at an in-

terstate location in Sioux Falls, South Dakota. Arnott

declined. He was again contacted by Lucas in late 1971

and, as a result, flew to Sioux Falls. Lucas showed Ar-

nott projected profit figures on the service station which

were considerably better than those from Arnott’s

Minneapolis station. Arnott agreed to make the change.

He entered into a lease agreement dated February 18,

1972, for a one-year period. It was then a standard

policy of Amoco to issue only one-year leases, but there

was also evidence at the trial that these leases were rou-

tinely renewed on an annual basis if the dealer operated

the station in a reasonable manner. Arnott testified that

it was his understanding that as long as he operated the

station in a reasonable manner and it was a profitable

venture for himself and Standard Oil, he could have it

for as long as he wanted, which was in accord with his

experience as a Standard Oil dealer.

The lease required the service station to remain open

twenty-four hours a day. There was no specific agree-

ment that Amoco would supply any specified amount of

gasoline to the station. The lease was later amended in

certain details. At the time the lease was executed, Ar-

nott was given a written Statement of Policy issued by

Amoco which set out the dealer-company relationship.

Arnott was familiar with it as it was read as a part of

the dealer indoctrination schools which Arnott attended

and was followed by Amoco at Arnott’s prior Standard

Oil stations. ;

The Statement of Policy contained several provisions

which were repeatedly violated by Amoco employees.

4 continued

South Dakota, during the period 1960-67. He discontinued his

dealership in 1967 to become a life insurance salesman. In

1970, after again attending a dealer training school, he open-

ed the Minneapolis station.

5 Since the Statement of Policy contained several represen-

tations which Arnott claims were false and fraudulent and

(Footnote continued on following page)

—4a—

5 continued

made with intent to deceive, which were relied upon by Ar-

nott in entering into the lease agreement with Amoco, and

which form the basis for his claim for damages as a result

thereof, pertinent portions are set out as follows:

STATEMENT OF POLICY

Since we first meee leasing service stations to iy tom

dent dealers over 35 years ago, this company has been

committed to a policy which recognizes that the dealers it

serves ar independent businessmen who have the right to

run their stations free from coercion or improper pressure

on the part of any Company representative. * * *

* * *

FIRST, with respect to our gasoline, we believe every

dealer must use his best efforts to promote their sale to

the motorist. We believe every dealer should provide

prompt and courteous service and just treatment to

customers, hire adequate help, maintain reasonable hours

of operation and keep the premises in a clean and attrac-

tive condition.

SECOND, with respect to motor oils, we expect you as a

minimum to stock and display our line of oils, since most

motorists who buy our gasolines also wish to purchase our

motor oils. However, no Company representative may

bring any pressure to bear on you if you also choose to

handle some competitive brands.

THIRD, with respect to tires, batteries, and accessories,

you have complete freedom to buy these products from

whomever and in whatever quantities you choose. The

Company will not tolerate coercion, harassment, or im-

proper pressure of any kind by our salesmen in the sale of

these products. However, because we believe our line of

TBA offers you an unparalleled opportunity for additional

profit, we expect our salesmen to call your attention to the

merits of our products and try to sell them to you.

FOURTH, with respect to all products, you have an ab-

solute right to set your own resale prices except in states

where Standard Oil products are fair traded. You also are

free to mg ond and promote your products as you see fit.

While we have developed a wide variety of advertising,

sales promotion and merchandising programs which we

believe will assist you in your sales efforts, you are free to

reject them if you desire. We will, of course, give you our

suggestions and advice on all of these matters based on

our long experience in the business, but you alone must

decide your own course of action.

—5a—

The Policy provisions which the record discloses were

violated by Amoco may be summarized as follows: (1)

Arnott would be an independent businessman who

would have the right to run his station free from coer-

cion or pressure on the part of any company represen-

tative; (2) no company representative would bring any

pressure to bear on Arnott if he chose to handle com-

petitive brands of motor oils; (3) with respect to tires,

batteries, and accessories, Arnott would have complete

freedom to buy these products from whomever he chose;

the company would not tolerate coercion, harassment, or

improper pressure of any kind by its salesmen in the

sale of these products; (4) Arnott would have the ab-

solute right to set his own resale price with respect to all

Standard Oil products, including gasoline, and would be

free to display and promote all products as he saw fit;

and (5) Arnott would not be pressured into participating

in advertising, sales promotions, or merchandising

programs sponsored by the company.

On several occasions when Arnott placed competitive

brands on display along with Standard Oil products, he

was instructed by Amoco to remove the same. On one oc-

casion Arnott purchased and placed on display Goodyear

tires. Amoco’s highest ranking dealer representative in

South Dakota, Jack Reutschler, told Arnott that he

should return the Goodyear tires and display only Atlas

tires (Standard’s brand) if he wanted to continue to

operate the station. Arnott returned the Goodyear tires

and discontinued selling them. Furthermore, Arnott’s

purchase of Standard’s motor oil from a local wholesale

distributor was discontinued by the wholesaler on the in-

structions of Amoco, thereby requiring Arnott to

purchase motor oil directly from Amoco. Arnott was

also required to purchase Green Stamps, which he did

at a cost of $3,000. Amoco threatened nonrenewal of his

lease if he refused to do so. During the time Arnott

operated his station, he received telephone calls from

Amoco representatives instructing him to raise or lower

his retail gasoline prices. When he deviated from Amoco

pricing directives, Arnott was threatened with non-

renewal of his lease.

—§a—

In addition, the evidence discloses that during the

course of the lease agreement Amoco misrepresented the

benefits to be received by Arnott for the installation of a

car-wash. Arnott was persuaded to purchase a carwash

from Amoco for $15,430. In turn, a lease rider effective

June 1, 1972, was entered into whereby Arnott was to

receive a minimum monthly rebate. On October 13,

1972, Amoco cancelled the carwash rider agreement and

presented Arnott with a new lease that substantially in-

creased the amount of gallonage sales necessary before a

rebate could be realized. This had the effect of reducing

by one-half the monthly rental rebate paid to Arnott un-

der the carwash agreement. In addition, the carwash in-

stallation necessitated the removal of a car hoist in one

of the service bays. An Amoco representative stated that

a new hoist compatible with the carwash would be in-

stalled. The new hoist was never received, and thus the

ee capacity for mechanical work was reduced by

alf.

The difficulties Arnott had with Amoco over the mis-

representations made orally and those contained in the

Statement of Policy and the carwash agreement de-

scribed above took place during the first year Arnott

operated the station. On one occasion a representative of

Amoco suggested that Arnott move to a new location

which was less desirable. Arnott refused to consider it.

Arnott signed a new lease agreement on December 8,

1972, effective February 19, 1973, for an additional one-

year term. Arnott was not given a copy of the executed

lease until June 1978. During the interim from

February through May 1973 Arnott operated the station

without a lease. He was advised by Amoco represen-

tatives that he was on probation and would not be given

a lease unless he agreed to abide by the prices set by

Amoco and to participate in their promotional

programs. Arnott agreed to be cooperative in order to

secure the lease renewal.

However, the problems continued. Amoco represen-

tatives visited the station twice a week. If matters were

not handled to their satisfaction, Arnott was reminded

—f/a—

that if he wanted to continue at his location, he would

have to comply with Amoco’s requirements.

The severe nationwide gas shortage which occurred in

the spring of 1973 brought additional problems. On May

1, 1973, Amoco established an allocation program for

each Standard Oil dealer. Arnott followed the allocation

program and limited sales to customers. Nevertheless,

he often exceeded his daily allocations and on several oc-

casions ran out of gasoline.

Eventually Amoco’s_ representative, Dick Lucas,

suggested a program whereby Arnott was to place signs

up in the daytime indicating that he was out of gasoline

and then in the evening, when the service stations down-

town would close, he was to remove the signs and sell

gasoline. The purpose was to send motorists downtown

in the daytime. Arnott refused because the costs were

prohibitive. His main product was gasoline. To remain

open during the daytime for oil changes and grease jobs

was too costly. ;

During the last two weeks of his operation Arnott ran

out of gasoline most evenings and eventually closed the

station because it was not profitable to remain open. In

addition, customers became very irate after pulling into

the station only to find gasoline unavailable.

‘Arnott advised Amoco of his situation and that he was

closing down from 10:00 p.m. to 6:00 a.m. However,

Amoco advised Arnott that he was in violation of the

lease in failing to maintain a 24-hour operation.

Arnott became frustrated, and on July 17, 1973, he

signed a cancellation agreement to voluntarily leave the

station. Later in the day he reconsidered his position and

called an Amoco representative to rescind his consent to

the cancellation. A few days later Amoco marketing

representative, Clint Bucklin, told Arnott that if he

cooperated with Amoco’s policies, he could keep the sta-

tion. The next day Bucklin advised Arnoti that Bucklin

apparently had acted without authority and that Arnott

would be removed August 6, 1973. A formal letter to

that effect dated July 26, 1973, was mailed to Arnott,

—SZa—

who then retained counsel. Amoco was advised by letter

that its August 6 takeover was being treated by Arnott

as an involuntary cancellation of the lease. Arnott left

the station August 6, 1973. On that date Amoco hand-

delivered a letter to Arnott advising him that his lease

was being cancelled effective September 5, 1973,

because of violation of the 24-hour clause in the lease.

Subsequently Amoco leased the station to J. K. Sadler,

and Arnott sold his Standard Oil inventory and carwash

to the new lessee. Additional facts disclosed by the

record will be reviewed in connection with discussion of

the issues raised by Amoco in this appeal.

II. Fraud and Deceit.

Amoco initially contends that there is no evidence of

any misrepresentations, much less evidence of misrepre-

sentations of a material fact; no evidence that the state-

ments claimed to be false were knowingly false when

made; and no evidence of an intent to defraud. These

contentions have already been answered in our discus-

sion of the facts above and require no further elabora-

tion. We of course view the evidence together with all

reasonable inferences to be drawn therefrom in the light

most favorable to the jury verdict. After reviewing the

record, we are inclined to agree with the statement

made by the district court in denying Amoco’s motion

for a directed verdict:

I must confess that I’m somewhat shocked with the

manner in which the evidence shows that the Stan-

dard Oi) Company undertook to negotiate the lease,

and to try to, in its dealings with the dealer in con-

nection with its lease, to completely frustrate the

antitrust law, and the decisions under it, in the

manner in which they did this.

First of all, they go and get this—they negotiate

this lease. They put as an addendum to the lease a

receipt acknowledging that the lessee has received a

copy of the policy statement of the Standard Oil.

* * * And then they proceed to violate practically

—IJa—

every single one of the paragraphs in the policy

statement.

Fraud, like other issues of fact, may be established by

inferences arising from all the other facts and cir-

cumstances in evidence. Aschoff v. Mobil Oil Corp., 261

N.W.2d 120, 124 (S.D. 1977); Funke v. Holland Furnace

Co., 102 N.W.2d 668, 670 (S.D. 1960). The record amply

supports the jury finding, implicit in its verdict and

answer to the pertinent interrogatories, that Amoco was

guilty of misrepresentations of a material fact, that the

misrepresentations were known to be false when made

and were made with intent to defraud, and that .rnott

per thereon in entering into a lease agreement with

moco.

Amoco further contends that in any event Arnott’s

reliance thereon did not proximately cause the loss of his

station or any other loss because the initial lease had ex-

pired. The short answer is that Arnott, based on his

previous experience operating Standard stations and on

representations made by Amoco’s Dick Lucas prior to

Arnott’s leaving Minneapolis and entering into the first

Sioux Falls lease, was led to believe that he was enter-

ing into a dealership with excellent prospects for an ex-

tended period of time as long as he performed satisfac-

torily as a dealer. Under the circumstances, the jury

could find that the mere fact that the initial lease had

been amended to provide for the carwash installation

and had later been renewed by a second one-year lease

did not deprive Arnott of his anticipated long-term

dealer relationship with Amoco at the new location.

Amoco’s contention that the testimony regarding the,

alleged misrepresentations violated the parol evidence

rule is not well taken. Such testimony is permitted when

a contract is induced or procured by fraud. Sabbagh v.

Professional & Business Men’s Life Ins. Co., 116 N.W.2d

518, 520 (S.D. 1962).

Amoco additionally contends that even if the represen-

tations claimed to be fraudulent were fraudulent, they

were made prior to the execution of the renewal lease,

—10a—

which was executed on December 8, 1972, for an ad-

ditional one-year period, and that Arnott had full

knowledge of such falsity when he executed the new

lease and the amendments thereto concerning the

carwash. Thus Arnott waived any right to sue for such

alleged fraudulent representations; see Taute v. Econo-

Car Int'l, Inc., 414 F.2d 828 (9th Cir. 1969); Commodity

Credit Corp. v. Rosenberg Bros. & Co., 243 F.2d 504, 512

(9th Cir.), cert. denied, 355 U.S. 837 (1957); and Arnott is

estopped from questioning the validity of the lease

agreement and provisions therein. See Schutterle v.

Schutterle, 260 N.W.2d 341, 350 (S.D. 1977). Moreover,

Arnott entered into an accord and satisfaction with

Amoco by the negotiation and execution of the lease

rider agreements and acceptance of payments

so S.D. Compiled Laws §§ 20-7-1, et seq.

The district court fully instructed the jury on the

defenses urged by Amoco of waiver, estoppel, and ac-

cord and satisfaction. The instructions were proposed by

Amoco. Each defense involved factual issues which were

determined against Amoco by the jury. The record amp-

ly supports the jury’s resolution of these issues. For ex-

ample, it can hardly be said on this record that Arnott,

with full knowledge of the fraud, asked for and received

a material concession from Amoco. See United Forest

Prod. Co. v. Baxter, 452 F.2d 11 (8th Cir. 1971). The

matter of the amount of damages proximately caused by

Amoco’s fraud and deceit will be discussed under “V.

Damages,” infra.

III. Fiduciary Relationship.

Arnott alleged that Amoco breached the fiduciary

duty owed to Arnott by terminating his lease without

good cause and by not dealing with Arnott in good faith

during the lease term. The court instructed the jury that

a fiduciary relationship existed between the defendant

—lla—

and the plaintiff.6 Amoco contends that the evidence

does not support the existence of a fiduciary relationship

and that the court erred in instructing that the

relationship existed as a matter of law. Further, Amoco

argues that it properly terminated Arnott’s lease for

failure to maintain a 24-hour operation as set out in the

lease.’

: [Y]o. are instructed that a fiduciary relationship ex-

isted between the defendant and the plaintiff. A fiduciary

relationship is one founded on trust or confidence placed

by one person in the integrity and fidelity of another per-

son. Out of such a relation, the law requires that neither

party exert undue influence or pressure upon the other,

take selfish advantage of his trust or deal with the subject

matter of the trust in such a way as to benefit himself or

prejudice the other except in the exercise of the utmost

good faith and with the full knowledge and consent of the

other person involved.

7 In this connection the district court further instructed the

jury inter alia: ;

_If you find that the circumstances presented during the

time period in question were such that the reason for

maintaining a 24-hour operation could not be fulfilled,

then you may consider that fact in deciding whether the

plaintiff substantially performed his obligations under the

terms of the lease, notwithstanding his failure to maintain

a 24-hour operation.

You are instructed that under the laws of the State of

South Dakota that the terms of the contract may be im-

lied if manifested by the conduct of the parties.

herefore, if you should find that under all facts and cir-

cumstances presented, that the defendant’s conduct_im-

plied that it would supply plaintiff with sufficient quan-

tities of gasoline and other petroleum products to enable

the plaintiff to maintain a 24-hour operation, then you

may also find that the defendant’s failure to fulfill that

implied condition would excuse the plaintiff's failure to

maintain a 24-hour operation of the station.

You are instructed that under the laws of the State of

South Dakota the failure of a party to perform under the

terms of an agreement is excused when the party’s perfor-

mance is prevented by the act of the other party, or by the

operation of law.

(Footnote continued on following page)

—12a—

Although the existence of a fiduciary relationship is a

close question, the dealer-oil company relationship has

been the subject of much recent litigation, and the

current trend of authority recognizes that a franchise

relationship exists between a service station dealer and

the oil company whose trademark the dealer is

promoting. Inherent in a franchise relationship is a

fiduciary duty.

A New Jersey court ruled that a franchise existed

between tenant-dealer Marinello and landlord Shell Oil

Co. in Shell Oil Co. v. Marinello, 294 A.2d 2538 (N.J.

Super. 1972), affd, 307 A.2d 598 (N.J. 1973), cert.

denied, 415 U.S. 920 (1974).

The fact that Shell here asserts its rights as a

landlord to terminate a lease is not the end of the

inquiry. It is now recognized that a lease is simply

a species of contract which happens to concern real

estate, and we must determine under principles of

contract law the construction of the document in

question in a manner consistent with the true intent

and purpose and the reasonable expectations of the

parties as suggested not only by the contents of the

instrument but the whole of the relationship that

existed between them. * * *.

Furthermore, it should be apparent that we are

not dealing here with a traditional landlord-tenant

relationship but with what is essentially a form

of commercial venture—a franchise—for the

1 continued

The district court further instructed as follows as to the essen-

tial elements which plaintiff must establish:

First, that the defendant terminated its lease with the

plaintiff wipes ee cause. In this cig ard cause is

efined as the failure | eerie to substantially perform

es obligations to the defendant under the terms of the

ease;

Second, that as a direct and proximate result of the

—— termination of the lease, the plaintiff suffered

a loss; an

Third, the monetary amount of that loss.

—13a—

marketing of Shell’s products, in which both parties

have a common interest and profit from the ac-

tivities of the other. Shell’s interest in these

premises is obviously more than the interest of a

landlord, and Marinello’s interest transcends that of

a tenant—his investment and very livelihood depend

on his remaining within the good graces of Shell’s

local employees who, as the record here

demonstrates, exercise final and absolute authority

over his tenure as a Shell dealer.

Id. at 261 (citations omitted). See Amerada Hess Corp. v.

Quinn, 362 A.2d 1258 (N.J. Super. 1976).

More recently, the Pennsylvania Supreme Court deter-

. mined in Atlantic Richfield Co. v. Razumic, 390 A.2d

736 (Pa. 1978), that while the dealer and oil company

were landlord and tenant, their lease and business prac-

tices indicated a franchise relationship. The court de-

fined a franchise as a license from the owner of a

trademark which permits another to sell a product or

service under the name or mark. Id. at 740, quoting from

Piercing Pagoda, Inc. v. Hoffner, 351 A.2d 207, 211 (Pa.

1976). Razumic purchased fuel and other products from

Arco and resold them under the Arco trademark.

Razumic was required to have his station open twenty-

four hours a day, to maintain adequate and efficient

attendants, and to allow Arco to inspect the station.

The course of performance pursuant to the agreement

between the parties was considered a strong indication

of their relationship. Jd. at 741 n.6. Because the facts

showed the actual practice of a franchise relationship,

the court did not feel it was significant that the service

station lease had not specified a franchise relationship.

In ruling that a franchise relationship existed, the court

determined that “it is clear that Razumic was not pur-

suing solely his own business interests. Rather, Razumic

conducted his business and sold his products in accor-

dance with methods prescribed by Arco.” Jd. at 740.

It is likewise clear that Arnott was not pursuing solely

his own business interests in his relationship with

—l4a—

Amoco. Arnott sold Amoco products under the Amoco

trademark, was expected to remain open twenty-four

hours a day, was respensible for hiring adequate help,

and was subject to inspections from Amoco represen-

tatives. Further examples of Amoco’s control are

Amoco’s pricing directives, Amoco’s requirement that

Arnott purchase Green Stamps, and Amoco’s control

over Arnott’s product advertising as indicated by the

forced return of the Goodyear tires. Obviously, a

franchise relationship in which Arnott and Amoco had a

common interest and profit in the activities of each

pines and not the typical landlord-tenant relationship,

existed.

A franchisee, unlike a tenant pursuing his own in-

terests, builds the goodwill of his own business and the

goodwill of the franchisor. Atlantic Richfield Co. v.

Razumic, supra, 390 A.2d at 742. This facet of the

relationship has led to the recognition that the franchise

relationship imposes a duty upon franchisors not to act

arbitrarily in terminating the franchise.

[AJn Arco dealer such as Razumic can justifiably

expect that his time, effort, and other investments

promoting the goodwill of Arco will not be

destroyed as a result of Arco’s arbitrary decision to

terminate their franchise relationship. Consistent

with these reasonable expectations, and Arco’s

obligation to deal with its franchisees in good faith

and in a commercially reasonable manner, Arco

cannot arbitrarily sever its franchise relationship

with Razumic. A contrary conclusion would allow

Arco to reap the benefits of its franchisees’ efforts

in promoting the -goodwill of its name without

regard for the franchisees’ interests.

Id. at 742 (footnote omitted). See Seegmiller v. Western

Men, Inc., 487 P.2d 892 (Utah 1968); Ashland Oil, Inc. v.

Donahue. 223 S.E.2d 433 (W.Va. 1976); Brown,

Franchising—A Fiduciary Relationship, 49 Tex. L. Rev.

650 (1970-71).

aero -arernenascons —

—15a—

In. Shell Oil Co. v. Marinello, supra, 294 A.2d at 262,

263, the court ruled that public policy required a term

to be implied in the service station lease that the lessor

cannot refuse to renew the lease without good cause. The

court stated:

Surely no person would make the kind of invest-

ment in money, time and effort as did Marinello

without the reasonable expectation that if he sub-

stantially performed his obligations to Shell, the

latter would in turn continue to renew his lease and

dealership. He was, by virtue of Shell’s dominant

position in their relationship and the legal structure

of the agreements whose terms he could not vary,

compelled to rely upon Shell’s good faith in living

up to these expectations.

Id. at 262.

Further indication of the fiduciary nature of a

franchise relationship is found in the recent surge of

general franchise legislation. As of May 1, 1977, legisla-

tion under which franchisors are prohibited from ter-

minating franchises prior to the end of their terms

without good cause, are required to make payments for

goodwill if franchises are terminated or not renewed at

the end of their term, or are prohibited from failing to

renew franchises at the expiration of their terms

without good cause has been adopted in twelve states

and Puerto Rico. Baird, Hay & Bailey, Government

Regulation of Real Estate Franchising, 112 Real Prop.,

Prob. & Tr. J. 580, 594 (1977). Congress has recently

enacted legislation specifically regulating the

relationship between service station dealers and their

franchisors in the Petroleum Marketing Practices Act,

15 U.S.C. § 2801, et seg. (1978). “Congress sought to

remedy a situation which had led to ‘numerous com-

plaints by franchisees of unfair terminations or non-

renewals of their franchises by franchisors for arbitrary

and even discriminatory reasons.’ ” Saad v. Shell Oul Co.,

460 F. Supp. 114, 115 (E.D. Mich. 1978), quoting from

S.R. 95-731 at 17. The Act prohibits the franchisor from

terminating or failing to renew a franchise relationship

—16a—

except under specific conditions and for specific

grounds. Frisard v. Texaco, Inc., 460 F. Supp. 1094,

1097 (E.D. La. 1978).

South Dakota, in accord with this modern trend,

enacted the South Dakota Franchise Act, S.D. Compiled

Laws, ch. 37-5A (1977) in 1974. South D. Compiled Laws

§ 37-5A-66(7) (1977) prohibits unfair or inequitable

terms or conditions in franchise agreements and unfair

or inequitable practices by the franchisor. Although this

statute is not controlling since the Arnott lease agree-

ment was initiated in 1973, it is relevant in determining

South Dakota’s position regarding franchise ter-

minations. In both Shell Oil Co. v. Marinello, supra, 294

A.2d at 263, and Atlantic Richfield Co. v. Razumic,

supra, 390 A.2d at 743, the courts’ decisions relied on

the public policy exemplified by the state statutes

though the statutes were not controlling because they

were enacted after the parties had established their

franchise relationships. The statutes were viewed as

reinforcing the obligations inherent in a franchise

relationship. The South Dakota statute indicates that in

South Dakota unfair or inequitable practices by a

franchisor will not be tolerated. South Dakota law

therefore indicates that the franchisor and franchisee of

a service station operation are involved in a fiduciary

franchise relationship. whereby the parties should act

with good faith toward each other. Judge Nichol, during

an informal discussion of Amoco’s motion for a directed

verdict, indicated it was his view that South Dakota, in

enacting the 1974 Franchise Act, “was codifying what

was really the common law in South Dakota, anyway.”

It was the court’s epinion that, in light of Amoco’s

superior position in dictating the terms of the lease

agreement, the relationship of the parties was a matter

of law. We give great weight to the district court’s view

8 It is true, as Amoco contends, that the court’s instruction

was taken from Mobil Oil Corp. v. Rubenfeld, 72 Misc.2d 392,

339, N.Y.S. 623 (N.Y. 1972), a case in which the determina-

tion that a fiduciary relationship existed between the dealer

(Tootnote continued on following page)

—17a—

of state law. American Motorists Ins. Co. v. Samson, 596

F.2d 804, 807 (8th Cir. 1979); Gatzemeyer v. Vogel, 544

F.2d 988, 992 (8th Cir. 1976).

In light of the undisputed facts in this case, it is our

view that the district court did not err in instructing

that a fiduciary relationship existed between the parties

and in instructing that the law requires that neither

party exert undue influence or pressure upon the other.

See note 6 supra. In any event, when the instructions on

breach of fiduciary duty are considered as a whole,

error, if any, was harmless. See note 7 supra.

We are satisfied that the evidence amply supports the

jury’s finding that Amoco breached its “fiduciary” duty

of good faith and fair dealing with Arnott in ter-

minating its lease agreement with Arnott without good

cause and that as a direct and proximate result of the

termination Arnott suffered damages.

IV. Violation of the Antitrust Laws.

Arnott charged that during the time he operated his

service station, various Amoco representatives in-

structed him to raise or to lower his retail gas prices to

specified levels at specified times; that when he did

attempt to vary his retail gasoline prices from those

specified by Amoco, he was threatened with cancellation

or nonrenewal of his short-term station lease; that as a

result of Amoco’s price-fixing activities he lost profits on

gasoline sales during the term of his lease; and that his

lease was cancelled because, among other reasons, he

failed to follow the pricing directives of Amoco

8 continued

and the oil company was reversed on appeal. In reversing

however, the court noted that the New York legislature ha

passed a franchise statute, but the bill was vetoed by the

vernor and did not become law. The court concluded that

ew York, therefore, had negated any fiduciary policy of ter-

mination only for cause by failing to enact the statute. Mobil

il Corp. v. Rubenfeld, 370 N.Y.S.2d 943, 949 (Sup. Ct. 1975).

This is plainly distinguishable from the instant case due to

South Dakota's Franchise Act.

—18a—

representatives, thereby causing him loss of his business

and loss of future profits.

Amoco denied that it violated any antitrust laws or

that it attempted to infringe upon or restrict free trade

or fix prices to restrain competition or otherwise. By

way of affirmative defense, Amoco alleged that Arnott

made his own judgment regarding operation of the sta-

tion; that if there were any representations made in con-

nection with gasoline prices, Arnott, by renewal of his

lease and riders thereto, acquiesced in such conduct and

cannot now be heard to complain; and that the lease

itself gave Amoco the absolute right to terminate the

same on any material violation thereof, which it con-

tends occurred when Arnott failed to operate said sta-

tion twenty-four hours a day, seven days a week, as

specified in the lease.

Amoco contends that there was insufficient evidence

to create a submissible jury issue on price-fixing. We

disagree. Although there were conflicts in the testimony

of other dealers as to whether Amoco’s calls regarding

retail prices for gasoline were merely suggestions, there

was sufficient evidence upon which a jury could find

that retail prices were dictated by Amoco. For example,

Mrs. Bill Pasco testified that she and her husband

operated a Standard station in the same general area

during the same period and that they would receive

calls from Amoco representatives stating what price

should be posted. She added, “I would say it was not a

suggested price.” If they deviated, “we would be check-

ed, and my husband, he would have conversation with

them. * * * We would take and put our prices where

they had stated.” Similarly, Greg White, who operated a

Standard station in Sioux Falls during the relevant

period, testified that representatives of Amoco would

call, stating “your cost is this, and your selling price is

this.” At times when he deviated, he received calls from

Standard representatives: “That—you know, we should

fall in line with other dealers. * * * They’d remind you

next February your lease is coming up.”

a en

Arnott testified that representatives of Amoco would

call and tell him what the retail price was to be, and

when he failed to comply, he would receive further calls

advising him that he was not in compliance; that his se-

cond one-year lease was withheld during February-May

1973 and he was placed on probation until he agreed to

abide by the prices set by Amoco; and that a couple of

days after Arnott in frustration signed a mutual

cancellation agreement and then rescinded the same, he

was advised by an Amoco representative that he could

keep the station if he cooperated with resale pricing and

other cirectives. Shortly thereafter, by letter dated

August 6, 1973, Amoco notified Arnott that it was

cancelling his lease effective September 5, 1973, for

failure to keep the station open for operation twenty-four

hours a day. Arnott’s testimony with respect to coercion

by Amoco’s representatives in connection with the fixing

of the retail price of gasoline was also corroborated by

the testimony of former empioyees. The witnesses

generally testified in terms of Amoco “fixing prices”;

one witness described Arnott’s price as usually being

“one cent higher.”

Any resale price-fixing, whether by combination or

agreement, is a per se violation of section 1 of the Sher-

man Act, 15 U.S.C. § 1.9 In Albrecht v. Herald Co., 390

U.S. 145 (1968), the Supreme Court noted that

“agreements to fix maximum prices ‘no less than those

to fix minimum prices, cripple the freedom of traders

and thereby restrain their ability to sell in accordance

with their own judgment.’”” Jd. at 152, quoting from

Kiefer-Stewart Co. v. Seagram & Sons, 340 U.S. 211, 213

(1951). Furthermore, “a supplier may not use coercion

on its retail outlets to achieve resale price maintenance.

* * * [Tit matters not what the coercive device is.” Simp-

son v. Union Oil Co., 377 U.S. 18, 17 (1964).

~ In United States v. McKesson & Robbins, 351 U.S. 305

(1956), the Supreme Court emphasized:

® 15 U.S.C. § 1 reads in part: “Every contract, combination

* * * or cons iracy, in restraint of trade or commerce among

the several States * * * is declared to be illegall[.]”

—20a—

It has been held too often to require elaboration

now that price fixing is contrary to the policy of

competition underlying the Sherman Act and that

its illegality does not depend on a showing of its un-

reasonableness, since it is conclusively presumed to

be unreasonable. It makes no difference whether

the motives of the participants are good or evil;

whether the price fixing is accomplished by express

contract or by some more subtle means; whether

the participants possess market control; whether

the amount of interstate commerce affected is large

or small; or whether the effect of the agreement is

to raise or to decrease prices.

Id. at 309-10 (footnotes omitted).

In Albrecht v. Herald Co., supra, 390 U.S. at 149, the

Supreme Court in discussing United States v. Parke,

Davis & Co., 362 U.S. 29 (1960), observed: “The com-

bination with retailers arose because their acquiescence

in the suggested prices was secured by threats of ter-

mination; the combination with wholesalers arose

— they cooperated in terminating price-cutting

retailers.”

In the instant case there is evidence from which the

jury could find that Arnott and other dealers were forc-

ed by means of threats and other coercive tactics to set

gasoline retail prices at prices fixed by Amoco. Amoco’s

threat not to renew the annual lease was enough to

make the dealers toe the line. In this context the

suggested price became the required price. See Lehrman

v. Gulf Oil Corp., 464 F.2d 26, 37-41 (5th Cir.), cert.

denied, 409 U.S. 1077 (1972); Phillips v. Crown Central

Petroleum Corp., 395 F. Supp. 735, 760-64 (D. Md. 1975).

The jury could find from the evidence in the case that

Amoco’s actions constituted an unlawful combination un-

der either of two theories: (1) That a combination existed

between Amoco and Arnott at those times he complied,

even though unwillingly, with Amoco’s pricing direc-

tives; and (2) that Amoco had combined with other

dealers who acquiesced in the enforced pricing policy.

—2la—

Albrecht v. Herald Co., supra, 390 U.S. at 150 n.6. We

are satisfied that the evidence supports the jury finding

of price-fixing in violation of the Sherman Act.

Amoco further urges that Arnott failed to show a

causal connection between the alleged unlawful price-

fixing combination and the termination of his lease. We

cannot agree. The evidence discloses that a _ repre-

sentative of Amoco told Arnott that he could keep

the station if he were more agreeable in adhering to

Amoco’s pricing policies. It is also noted that other

dealers were allowed to reduce their hours of operation

during the gasoline shortage. The jury could infer that

Arnott’s failure to follow Amoco’s pricing directives was

the proximate cause of the termination of his lease and

subsequent loss of income as a result thereof.

V. Damages.

Initially Amoco contends that Arnott has failed to es-

tablish the fact of damage resulting from unlawful acts

on the part of Amoco. The fact of damage arising from

Amoco’s price-fixing activities has been discussed above.

Arnott’s claim for damages arising out of his contention

that Amoco fraudulently induced him to enter into the

lease agreement is also based on wrongful termination

of the lease. He testified that he sold his home and his

business in Minneapolis and acquired the dealership in

Sioux Falls upon the representations of Amoco that as

long as he operated the service station in a reasonable

manner and it was a profitable venture for himself und

Standard Oil, he could continue to operate the station.

The fact of damage is Arnott’s loss of a profitable

business caused by Amoco’s wrongful termination of the

lease.

VI. Amount of Damages.

Arnott’s claim for damages on all three complaints of

Amoco’s (1) fraudulent misrepresentations in inducing

him to enter into the lease agreement, (2) breach of

fiduciary duty, and (3) violation of the antitrust laws is

—22a—

based on loss of future profits. In this connection Arnott

offered the expert testimony of Dr. Dennis Johnson,

Professor of Economics at the University of South

Dakota. Basically Dr. Johnson computed Arnott’s

average income with the Standard station during the

years 1972-73 and compared the same with Arnott’s

average income without the station in 1971 and 1974-77.

The figures were obtained from Arnott’s income tax

returns. After computing the difference of $11,886, Dr.

Johnson multiplied the figure by Arnott’s work life ex-

pectancy from the date the lease was terminated, with

an ailowance for productivity increase, and reduced it to

its present value of $318,622.!° Johnson used adjusted

gross income in making his computations.

_ Amoco contends that the expert’s projection of loss of

income was speculative and completely erroneous

because Arnott had a nonrenewable one-year lease

which by its terms would expire February 18, 1974;

further, that the proper measure of damages is the go-

ing concern value of a destroyed business. Amoco relies

on Albrecht v. Herald Co., 452 F.2d 124, 129-31 (8th Cir.

1971), for the proposition that there can be no recovery

for loss of future profits as such; such profits may be

considered only for purposes of determining lost value of

business by using the capitalized profit method of valua-

tion. The difficulty with Amoco’s analysis of the Albrecht

case is that it overlooks the fact that the district court in

Albrecht permitted the jury to make an award based on

the difference between the fair market value at the time

of sale and the actual sale price received, plus the loss of

future profits. Albrecht v. Herald Co., 321 F. Supp. 99

(E.D. Mo. 1970), modified, 452 F.2d 124 (8th Cir. 1971).

In reversing the district court, this court held that it

was improper to permit a plaintiff damaged by an an-

titrust violation to recover both the value of the business

as a going concern at the time of the damage and future

profits of that business after the time of the damage.

Future profit potential is taken into consideration in

valuing the business as a going concern.

© The jury’s award of actual damages was $100,000.

—223a—

In the instant case it must be acknowledged that Ar-

nott cannot sell his business for the fair market value

and also recover future profits. However, the record

demonstrates that Arnott’s sale of his inventory to the

new lessee selected by Amoco was not a willing buyer-

willing seller transaction. Under Amoco’s supervision,

Arnott sold his Standard Oil inventory to the new lessee,

a former Standard Oil salesman from Chamberlain,

South Dakota, Jay Sadler. Arnott’s initial investment in

February 1972 was $27,722.14, and he sold the inventory

to Sadler for $30,638.05. The jury could infer from all of

the circumstances that it was a forced sale with no

allowance for goodwill or the value of a going business

and therefore that Arnott had not received the fair

market value of his business.

In Albrecht v. Herald Co., supra, 452 F.2d at 128-29,

the court discussed numerous cases in which future

profits were allowed and used as a method of calculating

the damage to the value of the business involved because

no other reliable method of valuing the business was

presented.!' In Lehrman v. Gulf Oil Corp., 500 F.2d 659

(5th Cir. 1974), cert. denied, 420 U.S. 929 (1975), the

court recognized that going concern value and lost

future profits are viable alternative measures of an-

titrust damages.

Clearly, going concern value and lost future profits

are each viable alternative measures of antitrust

damages. Future profits cannot be condemned as

inordinately more speculative than the going con-

cern value ‘nce the former is a crucial component

of the latter. In addition going concern or goodwill

value may present difficult problems of proof if the

lessor of a particular station places restrictive con-

1 Cases discussed were paseg v. Tidewater Oil Co., 327 F.2d

459 (9th Cir.), cert. conte, 77 U.S. 993 (1964); Osborn v.

Sinclair Ref. Co., 324 F.2d 566 (4th Cir. 1 3} Atlas Bldg.

Prod. Co. v. Diamond Block & Gravel Co., 269 F.2d 950 (10t

Cir. 1959), cert. denied, 363 U.S. 843 (1960); and Twentieth

Century Fox-Film Corp. v. Brookside Theater Corp., 194 F.2d

846 (8th Cir.), cert. denied, 343 U.S. 942 (1952).

—24a—

ditions on the transfer of the lease. Finally, future

profits accompanied by an award for any decline in

asset values will often more fully compensate a

businessman by measuring his lost earnings, not

just what it is worth to someone else to reach for

those earnings.

Id. at 663-64 (footnotes omitted). See Lehrman v. Gulf Oil

Corp., 464 F.2d 26, 43-44 (5th Cir.), cert. denied, 409

U.S. 1077 (1972).

Amoco argues that the short-term nature of the lease

limits future damages. However, this ignores the

evidence from which the jury could properly infer Ar-

nott’s long-term expectations, based on future profit pro-

jections related to him prior to execution of the first

lease and the custom and practice of long-term renewals

known to Arnott through his prior experience with

Amoco. The trial court instructed the jury that it should

consider the terms and conditions of the lease and all

other testimony concerning renewals. We cannot say the

evidence does not support a finding that Amoco’s actions

indicated a long-term intention or fraudulent mis-

representation of such an intention.

There was a factual dispute concerning the duration

and the reasonableness of Arnott’s expectations. As

i in Lehrman v. Gulf Oil Corp., supra, 464 F.2d at

The duration of the period during which the plain-

tiff might be expected to profit will vary from case

to case; it is susceptible of no precise formulation,

and must be left to the processes of the jury in-

formed by the presentation of conflicting evidence.

Of course, the court might properly instruct the

jury that it may consider as one factor in its

deliberations the length of time which the plaintiff

had been in business as of the time of the defen-

dant’s anticompetitive actions; but the youth of a

business, like the precise manner of its doing-in,

will never alone be enough to justify severe restric-

tions upon the duration of damages. The court may

—25a—

condition a new trial on remittitur if it feels strong-

ly that the jury verdict is excessive. But it is ar-

bitrary and improper to limit damages as a matter

of law to the precise period of the plaintiff's

business operations if the reason for that limitation

is either the means used to drive the plaintiff out of

business or the relatively short history of his

business before its demise.

Finally, with respect to the damage issue, Amoco con-

tends that Dr. Johnson was not qualified to testify as an

expert witness. The contention is without merit and re-

quires little comment. The thrust of Amoco’s contentions

is a rehash of its argument that the fact that the lease

provided for a one-year term is controlling and therefore

computations with respect to loss of future profits should

not have been admitted. Dr. Johnson made computations

with respect to Arnott’s work life expectancy and loss of

income and reduced the same to present value. The

weight to be given thereto was a jury matter. We find

no abuse of discretion by the trial court in admitting

such testimony for whatever assistance it might give to

the jury in weighing the evidence with respect to

damages. Cf. Holmgren v. Massey-Ferguson, Inc., 516

F.2d 856 (8th Cir. 1975).

VII. Instructions.

Appellant makes the broad allegation that the court’s

instructions were basically erroneous and supports this

allegation with a lengthy enumeration of alleged errors

in the instructions themselves and in the court’s failure

to give proposed instructions. In effect, appellant is

merely repeating the argument that the evidence offered

did not create a submissible case. We deem it sufficient

to say that we have reviewed the instructions in detail

and, when considered as a whole, we are satisfied that

the issues were properly submitted to the jury.

VIII. Verdict Ambiguity.

The jury returned a general verdict in favor of Arnott

and against Amoco in the sum of $100,000 actual or

—26a—

compensatory damages and punitive and exemplary

damages of $25,000. The jury further answered special

interrogatories with respect to liability only against

Amoco:

Did you find Defendant American Oil Company

liable based on:

(yes) or (no)

a. False and fraudulent ANSWER Yes

representations

b. Breach of ANSWER Yes

fiduciary duty

ce. Violation of ANSWER Yes

antitrust laws

d. Atty’s. fees in State ANSWER Yes!!2!

Court Action

The district court trebled the $100,000 actual or com-

pensatory damages in view of the jury’s finding of

liability under the antitrust laws.

Amoco contends that the verdict is ambiguous and

that the court must speculate as to its meaning; there is

no way of determining what portion of the lump sum

damages was allotted to each item; it cannot be assumed

that $100,000 was properly attributable to the antitrust

claim; the court erred in trebling the award; and

therefore a new trial must be ordered. See Rea v. Ford

Motor Co., 497 F.2d 577, 579 (3d Cir.), cert. denied, 419

U.S. 868 (1974). Furthermore, the court awarded treble

damages in the amount of $300,000 and allowed the

punitive damages of $25,000 to stand, thus making a

total award of $325,000. Punitive and treble damages

cannot both be awarded for violation of the antitrust

laws. Hansen Packing Co. v. Armour Co., 16 F. Supp.

784, 788 (S.D.N.Y. 1936).

2 Attorney fees in state court action were conceded not to be

me Ap ny so there will be no further discussion thereof. See

n.3 supra.

—27a—

Arnott argues that the jury found for him on all three

counts!® submitted to it and that the sole evidence of

damages offered was the same on all three counts—loss

of future profits. Arnott also points out that prior to

making the record on instructions, Amoco asked for in-

terrogatories on the issues of liability, which were

granted, and that the trial court inquired of Amoco

counsel whether they cared to propose any in-

terrogatories on damages, which they did not. We can-

not consider the latter argument because the inquiry

and response were not made on the record. However,

counsel for Amoco does concede, and the record in-

dicates, that no objection was made by Amoco to the ver-

dict form except the general objection that there were

no submissible jury issues. Under the circumstances the

failure of Amoco to request any instructions or special

interrogatories on damages or to make objection to the

general verdict form results in a waiver of such objec-

tions on appeal. Fed. R. Civ. P. 51; Missouri Pac. R.R. v.

Star City Gravel, 592 F.2d 455 (8th Cir. 1979); see

Richardson v. Communications Workers, 486 F.2d 801,

804-05 (8th Cir. 1973). Amoco also failed to object or

seek clarification when the verdicts were rendered" and

therefore waived objection to the form of the verdict. See

Tennessee Consol. Coal Co. v. United Mine Workers, 416

F.2d 1192, 1200-1201 (6th Cir. 1969), cert. denied, 397

U.S. 964 (1970).

It is our task to determine if it was plain error for the

court not to instruct the jury with respect to awarding

damages separately as to each count and not to submit

interrogatories or verdict forms as to the amount of

damages found on each count. Any plain error exceptien

to Fed. R. Civ. P. 51 is “‘confined to the exceptional case

where the error has seriously affected the fairness, in-

_tegrity, or public reputation of judicial proceedings.’ ”

18 See n.12 supra.

4 Counsel for Amoco was present when the jury returned its

verdicts and in fact requested that each juror be individually

polled on each and every interrogatory and verdict. ,

—28a—

2 Barron and Holtzoff, Federal Practice and Procedure

475 (1961 ed.), quoted in Horace v. St. Louis

Southwestern R.R., 489 F.2d 632, 634 (8th Cir. 1974).

We are persuaded that the failure of the trial court to

submit verdict forms or interrogatories on each theory

of recovery prevented it from trebling the $100,000 ac-

tual damages awarded in the general verdict. It would

be purely speculative to assume that the entire general

verdict of $100,000 was awarded as damages resulting

from violation of the antitrust laws. We are, however,

satisfied that the evidence amply supports an award of

$100,000 actual and compensatory damages on any of

the three counts of (1) false and fraudulent represen-

tations, (2) breach of fiduciary duty, and (3) violation of

the antitrust laws.5 We are also persuaded that the

jury’s award to Arnott and against Amoco of punitive

and exemplary damages in the sum of $25,000 is sup-

ported by the record.

Upon condition that appellee George Arnott file a

remittitur within thirty days hereof of that portion of

the judgment in excess of $125,000, plus interest and

costs from the date judgment was entered herein, the

judgment is affirmed. Otherwise this cause is remanded

for a new trial.

Affirmed on condition that a remittitur be filed.

15 Although not raised by the parties, we sangeet that if a

new trial occurs, the better practice is to omit from the jury

instructions any reference to the trebling of damages in con-

nection with the recovery of damages under the antitrust

laws. See Devitt & Blackmar, 3 Federal Practice and Instruc-

tions § 90.39 (3d ed. i977).

—29a—

BRIGHT, Circuit Judge, concurring and dissenting:

I concur in the result reached by the majority, but

only because I believe that substantial evidence in the

record supports the jury verdict on the claim of fraud

and because I believe that the payment of the suggested

remittitur would constitute a reasonable resolution of

this litigation.! I do not believe that, as a matter of law,

a fiduciary relationship existed between the parties in

this case, nor do I believe that the evidence demon-

strates a violation of the antitrust laws. Because the

majority’s reasoning on those issues appears to me to be

in error and because this case may be retried, I set forth

my views in dissent.

I. The Relationship Between the Parties.

The district court twice instructed the jury that, as a

matter of law, a fiduciary relationship existed between

Arnott and Amoco, requiring Amoco to act for. itself

only with utmost good faith and the full knowledge and

consent of Arnott. These strictures, though appropriate

in the case of a trustee, should not be applied to a com-

mercial lessor. Rather, the lessor should he held to the

rules governing contracts in general. It is true that a

franchisor might have other duties. But only if the

evidence shows a relationship between lessor and lessee

extending significantly into other areas is it necessary or

desirable to characterize their arrangement as a

franchise. Even then one must determine which of the

full gamut of fiduciary responsibilities should be re-

quired of the franchisor. See Eaton, Yale & Towne, Inc.

v. Sherman Industrial Equip. Co., 316 F. Supp. 435, 445

(E.D. Mo. 1970). In my view both the district court and

1 The appellant’s objection that the proof of damages offered

by the spoenee was speculative has merit, but it does not

appear that appellant objected to some of the evidence now

questinese Moreover, the jury quite obviously did not eccept

the calculations of plaintiff's expert. Under these cir-

cumstances, I agree with the majority that the jury award

may stand if the appellee accepts the remittitur.

—30a—

the majority erred in deciding this matter; in fact, South

Dakota law does not justify the conclusion they reach.

The majority acknowledges (ante, slip op. at 18 n.8)

that Judge Nichol’s instruction on fiduciary duties was

based on a New York case that was later reversed. The

majority maintains, however, that the instruction

properly reflected South Dakota law because of the sub-

sequent enactment there of a comprehensive franchise

statute, S.D. Compiled Laws Ann. ch. 37-5A. The ma-

jority quotes Judge Nichol as expressly construing that

franchise statute as a codification of the common law of

South Dakota. Ante, slip op. at 18. I do not so read the

record.”

The South Dakota franchise law contains detailed :

registration and public disclosure provisions akin to

those found in the Securities Act of 1933, 15 U.S.C.

§§ 77a-77aa (1976). This scheme of franchise regulation

doubtless represents a substantial departure from the

common law of South Dakota. But even if the franchise

statute reflected existing common law standards

applicable to the lease challenged here, the district

court’s instructions would remain unjustified. The

statute merely enjoins unfair or inequitable practices.

S.D. Compiled Laws Ann. §§ 37-5A-51 and 37-5A-66(7).

It does not establish a fiduciary relationship between

franchisor and franchisee or impose a standard of ut-

most good faith.

The cases cited by the majority go no further than the

South Dakota statute. Shell Oil Co. v. Marinello, 120

2 In the passage relied on ' the majority, plaintiffs counsel

was attempting to explain the New Jersey Superior Court’s

interpretation of that state’s franchise statute in Shell Ol Co.

v. Marinello, 120 N.J. gt 357, 294 A.2d 253 (1972), afta,

63 N.J. 402, 307 A.2d 598 (1973), cert. denied, 415 U.S. 920

(1974). Judge Nichol interrupted to observe, “In other words

they were codifying the common law.” Plaintiff's counsel

replied, “That’s exactly right.” Judge Nichol then said, “Just

as maybe South Dakota did when it adopted the Franchise

Act, was codifying what was really the law in South Dakota

anyway.” (Emphasis added.) Plaintiff's counsel responded,

“That’s exactly what the New Jersey Court said.”

—3la—

N.J. Super. 357, 294 A.2d 253 (1972), aff'd, 63 N.J. 402,

307 A.2d 598 (1973), cert. denied, 415 U.S. 920 (1974),

nowhere mentions the concept of a fiduciary

relationship. Rather, the court there simply granted

dealer Marinello’s prayer for contract reformation by in-

ferring a contractual term that Shell could refuse to

renew his franchise (comprising both a lease and a mul:

tifaceted dealer agreement) only for good cause. Atlantic

Richfield Co. v. Razumic, 390 A.2d 736, 743 (Pa. 1978), is

to the same effect. Not only do these cases fail to state a

general principle of fiduciary duty, but they are also

readily distinguishable on their facts from the case at

hand. Here Arnott breached the terms of his lease

agreement by failing to stay open twenty-four hours a

day; in terminating his lease, Amoco was proceeding

under a clause permitting termination for cause.’

The parties in this case entered into a business

relationship, not a fiduciary relationship. Each party

served the interests of the other, but each also: quite

properly sought its own interests. The district court was

unwilling to find the terms of their agreement un-

conscionable. Cf. Shell Oil Co. v. Marinello, supra, 307

A.2d at 602-03 (striking the disputed termination provi-

sion as unconscionable and contrary to public policy). I

think that it was unnecessary to go beyond this conclu-

sion, and I believe the court committed error when, on

the facts of this case, it instructed the jury that a strict

eae relationship existed between Arnott and

moco.‘

+ The evident purpose of the statutory and common law

termination requirements * * * is the protection of

franchisees who have conscientiously striven to carry out

their obligations under the franchise agreement. They

were not intended to prevent the severance of those who

deliberately disregard reasonable requirements contained

in their contract with the franchisor [Amerada Hess Corp.

v. Quinn, 143 N.J. Super. 237, 362 A.2d 1258, 1267 (1976).

4 This error was not made harmless by the context in which

it occurred, as the majority suggests. Ante, slip op. at 19. The

disputed instruction was repeated by the court without benefit

of context when, after two hours of deliberations, the jury

returned with the question, “Define fiduciary duty.”

—32a—

Il. The Antitrust Claim.

The majority concludes that Amoco combined to fix

vertical prices, a per se violation of section 1 of the Sher-

man Act, 15 U.S.C. §1 (1976).5 Having reviewed the

record, I believe that there is insufficient evidence to

support this conclusion. Specifically, I find no proof of a

combination or conspiracy in this case; the contract

between Arnott and Amoco was admittedly innocuous.

My reading of the record is supported by Judge Nichol’s

observation at the close of plaintiff's case: “I don’t see

any evidence of conspiracy or combination in this case

* * #[ )” Unlike Judge Nichol, I believe this implicit find-

ing of unilateral activity vitiates Arnott’s antitrust

claim. See Quality Mercury, Inc. v. Ford Motor Co., 542

F.2d 466, 469 (8th Cir. 1976), cert. denied, 433 U.S. 914

(1977).

The record in this case reflects that Arnott usually

posted his retail gasoline prices a penny or two above

those suggested by Amoco. Such deviations led to

“coffee” with Amoco representatives, but no change. In

the only direct incident regarding prices recalled by Ar-

nott or his employees, Dick Lucas, field sales manager

for Amoco, refused one day to purchase gas from Arnott

because he thought it was too expensive. Arnott let his

prices stand.®

5 15 U.S.C. §1 provides in pertinent part: “Every contract, .

combination * * * or conspiracy, in restraint of trade or com-

merce among the several States, * * * is hereby declared to

be illegal[.]”

6 If I were writing on a clean slate with only the rule of

reason for guidance, see Standard Oil Co. v. United States,

221 U.S. 1 31) I would be meee peniees to find unlawful an

actual combination that succeeded in keeping down Arnott’s

prices. Arnott was, after all, exploiting the modicum of

monopoly pricing power that he enjoyed by virtue of his loca-

tion on an interstate highway.

Arnott testified that, in effect, many of his customers were

ignorant of the prices charged by his off-highway competitors.

e therefore found it advantageous to raise his prices; de-

mand for his gas was not greatly reduced. Amoco, on the

(Footnote continued on following page)

a ae

The majority suggest two theories under which the

jury could find a combination or conspiracy in this case:

first, that Amoco and Arnott combined when the latter

unwillingly complied with Amoco’s “pricing directives”;

and second, that Amoce combined with other dealers

who “acquiesced in the enforced pricing policy.” Ante,

slip op. at 22. Both of these theories are derived from

dicta in Albrecht v. Herald Co., 390 U.S. 145, 150 n.6

(1968). Neither one is applicable here.

First, the evidence provides no support for the notion

that Arnott unwillingly complied with Amoco’s “price

directives.” “Directives” cannot mean merely Amoco’s

6 continued 7 :

other hand, had a direct interest in maintaining the volume of

Arnott’s sales, in part because his lease payments were based

solely _on fuel ire See Continental T.V., Inc. v. GTE

Sylvania Inc., 433 U.S. 36, 56 n.24 (1977). Amoco also had an

important interest in the pricing reputation of its stations

generally. Success in restraining Arnott’s prices would have

advanced the interests of both Amoco and Arnott’s customers,

at the same time replicating (with respect to Arnott) the con-

sequences of a fully competitive retai gern market. See

Albrecht v. Herald Co., 390 U.S. 145, 169 (1968) (Steward, J.,

dissenting).

The Supreme Court has, however, displaced the rule of

reason in cases such as this by making agreements or com-

binations to fix maximum prices per se illegal. Kiefer-Stewart

Co. v. Seagram & Sons, 340 U.S. 211, 213 (1951); Albrecht v.

Herald Co., supra, 390 U.S. at 151. But cf. Continental T.V.,

Inc. v. GTE Sylvania Inc., supra (restoring the rule of reason

in cases addressing the legality of vertical nonprice restric-

tions). Notwithstanding the caveat in Continental T.V.

distinguishing price from nonprice restrictions, id. at 51 n.18,

the Court’s reasoning in that case suggests that the per se ap-

roach adopted in Albrecht may not survive reexamination.

ee Continental T.V., Inc. v. GTE Sylvania, Inc., supra, 433

U.S. at 69-70 (White, J., concurring); Posner, The Rule of

Reason and the Economic Approach: areaeee on the

Sylvania Decision, 45 U. Chic. L.Rev. 1, 12 (1977); Koches,

Developments in the Law of Vertical rameter Restrictions: A

Welcome Return to the Rule of Reason, 33 U. Miami L.Rev.

247, 266-68 wor Pitofsky, The Sylvania Case: Antitrust

—- By inn) Vertical Restrictions, 78 Colum L.Rev.

, 16 n. ,

—34a—

suggested prices: such suggestions, standing alone, were

clearly permissible. Susser v. Carvel Corporation, 332

F.2d 505, 510 (2d Cir.), cert. granted, 379 U.S. 885

(1964), cert. dismissed as impromdently granted, 381

U.S. 125 (1965). The majority must be referring more

particularly to the conversations over coffee that Arnott

had with Amoco representatives when he deviated from

the suggested prices. But there is no evidence that Ar-

nott changed his prices as a result of these conver-

sations, or that he thereafter hewed more closely to

Amoco’s suggested prices. The cited incident with Dick

Lucas likewise resulted in no change; Arnott continued

to price independently (ie, generally higher than

Amoco’s suggested prices) throughout the period of his

lease. Hence, in this case no combination existed and no

actual fixing of prices occurred. Cf. Quinn v. Mobil Oil

Company, 375 F.2d 273 (1st Cir.), cert. dismissed, 389

U.S. 801 (1967) (affirming dismissal of an antitrust com-

plaint on similar facts).

The panel’s second theory is also inapplicable to the

facts of this case. Having reviewed the record, I find no

substantial evidence of a combination between Amoco

and its other dealers. The record simply does not sup-

port the majority’s characterization of the dealers’

behavior as “acquies{[cence] in [an] enforced pricing

policy.” Ante, slip op. at 22. In contrast to the fragments

of Mrs. Pascoe’s testimony quoted by the majority, ante,

slip op. at 20, nine witnesses who were past or present

Amoco lessees (including Greg White) testified that

retail gas prices were only suggested by Amoco, that the

dealers possessed final authority to set prices, and that

this authority was frequently exercised independently.

Moreover, not one testified that his lease had been

threatened or terminated in retaliation for independence

in pricing. Cf. Umphres v. Shell Oil Company, 512 F.2d

420, 422 (5th Cir.), cert. denied, 423 U.S. 929 (1975)

(holding comparable evidence of vertical price fixing to

be clearly insubstantial).

Even if a combinat.on with other dealers were shown

to exist, I would be loath to hold that it satisfies the

statutory requirement of a “combination * * * in

—35a—

restraint of trade.” In fact, any such combination would

be wholly irrelevant to the restraint of trade alleged

here. See Albrecht v. Herald Co., supra, 390 U.S. at 161

(Harlan, J., dissenting). The other dealers in the Sioux

Falls area had little or no interest in Arnott’s affairs. To

the extent that they had an interest, it was not that of

Amoco: in all likelihood, the other dealers preferred that

Arnott keep his price higher than that suggested, as

such a policy might well bring them more customers.

Cf. Harold Friedman, Inc. v. Kroger Co., 581 F.2d 1068

(8d Cir. 1978) (finding similarly collateral dealings in-

volving the defendant to be insufficient evidence of con-

certed activity).

Under either of the majority’s theories, Arnott failed

to establish the “contract, combination or conspiracy” es-

sential to his Sherman Act claim. Hence, the cases the

majority relies upon in finding an antitrust violation are

not controlling here. In Simpson v. Union Oil Co., 377

U.S. 18 (1964), plaintiffs challenged retail service station

leases that were tied to “consigrment” agreements ex-

pressly empowering the supplier to set the selling price.

The presence of this price-fixing term, the court found,

distinguished Simpson from United States v. Colgate &

Co., 250 U.S. 300 (1919); its enforcement made the “con-

signment” agreements contracts in restraint of trade.

Simpson v. Union Oil Co., supra, 377 U.S. at 24. In the

case at hand there was no such price-fixing term; in-

deed, in the only written agreement concerning pricing,

Arnott was promised “an absolute right to set [his] own

resale prices * * *.”” uy

United States v. Parke, Davis & Co., 362 U.S. 29

(1960), is also inapposite. In that case a drug manufac-

7 To be_sure, Arnott alleged that Amoco breached this

promise. But the breach of a contract term does not transform

the contract, so that what it once promised, it now forbids.

Nor can it be argued that price fixing was a term in an im-

plied contract that replaced the fraudulently induced lease

agreement; as noted above, Arnott never agreed to such a

term. If Amoco sought to fix Arnott’s prices, it did so in spite

of, not in furtherance of, the terms of their agreement. Theirs

was simply not a contract in restraint of trade.

—36a—

turer was found to have combined not only with ac-

quiescing retailers but also with its wholesalers in order

to terminate those retailers that cut prices. Similarly, in

Albrecht v. Herald Co., supra, 390 U.S. at 149-150, the

defendant newspaper publisher was found to have com-

bined with two other persons, including a rival carrier,

to force plaintiff to charge only the advertised retail

price for his newspapers. In the case at hand, by con-

trast, Amoco acted unilaterally in terminating Arnott’s

lease. The other Amoco dealers cannot be said to stand

in the position of the wholesalers in Parke, Davis or the

rival carrier in Albrecht because they had no power over

Arnott. Amoco therefore could not and did not employ

the other dealers as a weapon in its dispute with Arnott.

In sum, I believe that the majority’s treatment of

fiduciary duties and the antitrust claims in this case is

in error. I fear that their approach will also have unfor-

tunate consequences in practice. Arnott clearly breached

the express terms of his lease agreement. To limit undu-

ly Amoco’s power of termination in circumstances such

as these (putting aside the issue of fraud) and to uphold

a dubious antitrust claim by the dissatisfied lessee, in-

vites wholesale suppliers to replace their lessees and dis-

tributors with employees whose freedom of action will

be considerably more restricted. See Continental T.V.,

Inc. v. GTE Sylvania Inc., supra, 433 U.S. at 57 n. 26.8

That is to say, the approach taken by the majority en-

courages increased concentration in the retail market

for gasoline and related products. I consider this to be

unwarranted and unfortunate.

A true copy.

Attest:

CLERK, U.S. CouRT OF APPEALS, EIGHTH CIR-

8 Examples of this im pisces wee may be found in Call Carl, Ine. v.

Oil ay ey egg ge gn

923 (1977); oot v. Daily Review, Inc., 548 F.2d 795 (9th

Cir. 1976), cert. denied, 433 ai S. 910 (sits and McGuire v.

Times Mirror Co., 405 F. Supp. 57 ( al. 1975).

—37a—

UNITED STATES COURT OF APPEALS

FOR THE EIGHTH CIRCUIT

No. 79-1150 September Term, 1979

Grorce ARNOTT,

Appellee,

vs.

Tue American Or Company, a Corporation,

Appellant.

JUDGMENT

[Filed December 10, 1979]

Appeal From the United States District Court for the

antiiiabiniacis District of South Dakota.

This Cause came on to be heard on the record from the

United States District Court for the ................ District of

South Dakota and was argued by counsel.

On Consideration Whereof, it is now here ordered and

adjudged by this Court, that the judgment of the said Dis-

trict Court, i in this cause, be, and the same is hereby, af-

firmed in the reduced amount of $125,000.00 plus interest

and costs.

[ Attestation ] December 6, 1979

a

UNITED STATES COURT OF APPEALS

FOR THE EIGHTH CIRCUIT

No. 79-1150 September Term, 1979

GrorGE ARNOTT,

Appellee,

vs.

Tse American Or Company, a corporation,

Appellant.

JUDGMENT

[Filed December 10, 1979]

Appeal From the United States District Court for the

sdsiglenibicdi District of South Dakota.

This Cause came on to be heard on the record from the

United States District Court for the ................ District of

South Dakota and was argued by counsel.

On Consideration Whereof, it is now here ordered and

adjudged by this Court, that the judgment of the said Dis-

trict Court, in this cause, be, and the same is hereby, af-

firmed upon condition that appellee, George Arnott file a

remittitur within thirty days hereof of that portion of the

judgment in excess of $125,000, plus interest and costs from

the date of judgment was entered herein, in accordance

with the majority opinion of this Court. Otherwise this

cause is remanded for a new trial.

October 24, 1979

—39a—

UNITED STATES COURT OF APPEALS

FOR THE EIGHTH CIRCUIT

No. 79-1150 September Term, 1979

Grorce ARNOTT,

Appellee,

vs.

Tue American Or Company, ete.,

Appellant.

Appeal from the United States District Court

for the District of South Dakota.

ORDER

[Filed December 3, 1979]

The Court having considered petition for rehearing en

banc filed by counsel for appellant and, being fully advised

in the premises, it is ordered that the petition for rehear-

ing en banc be, and it is hereby, denied.

Considering the petition for rehearing en banc as a peti-

tion for rehearing, it is ordered that the petition for re-

hearing also be, and it is hereby, denied.

[Notice of Entry] November 29, 1979

—A0a—

UNITED STATES COURT OF APPEALS

FOR THE EIGHTH CIRCUIT

No. 79-1150 September Term, 1979

Gerorce ARNOTT,

Appellee,

vs.

Tae American Or Company, etc.,

Appellant.

Appeal from the United States District Court

for the District of South Dakota.

ORDER

[Filed December 3, 1979]

Petition of appellee for rehearing filed in this cause hav-

ing been considered, it is now here ordered by this Court

that the same be, and it is hereby, denied.

[Notice of Entry] November 29, 1979

—4la—

UNITED STATES DISTRICT COURT

DISTRICT OF SOUTH DAKOTA

SOUTHERN DIVISION

Grorce ARNOTT,

Plaintiff,

Civ. No. 74-4035 vs.

Tue American Or Company, a Corporation,

Defendant.

ORDER DENYING MOTION FOR JUDGMENT

NOTWITHSTANDING THE VERDICT

OR, IN THE ALTERNATIVE,

A NEW TRIAL OR TO AMEND JUDGMENT.

[Filed January 4, 1979]

This matter having come before the Court upon motion

of the Defendant, The American Oil Company, for judg-

ment notwithstanding the verdict or, in the alternative, a

new trial or to amend judgment, and upon a careful con-

sideration of the briefs and argument of counsel, and the

Court being fully advised in the premises,

It Is Hereby Ordered that said motions are hereby de-

nied. .

Dated at Sioux Falls, South Dakota, this 4th day of

January, 1979.

By The Court:

/s/ Fred J. Nichol

Chief Judge

[Attestation and Notice of Entry]

—42a—

UNITED STATES DISTRICT COURT

DISTRICT OF SOUTH DAKOTA

SOUTHERN DIVISION

GrorcE ARNOTT,

Civ. No. 74-4035 vs.

Plaintiff,

Tse American Ou Company, a Corporation,

Defendant.

MEMORANDUM DECISION

Messrs. Michael F. Pieplow and Edwin E. Evans, of Daven-

port, Evans, Hurwitz & Smith, of Sioux Falls, South

Dakota, appeared in behalf of the plaintiff;

Mr. Timothy J. Nimick, of Woods, Fuller, Shultz & Smith,

of Sioux Falls, South Dakota, and Mr. Maurice Glover,

of Chicago, Illinois, appeared in behalf of the defendant.

The defendant makes this motion for a judgment not-

withstanding the verdict or in the alternative for a new

trial or to amend the judgment after a jury verdict in favor

of the plaintiff.

The defendant predicates this motion on his view of the

‘‘facts.’’ All of the defendant’s points were raised earlier.

They were argued and briefed thoroughly in connection with

pretrial motions, trial briefs and motions, proposed instruc-

tions refused, objections to instructions given, and the

motions for directed verdicts. The court is of the same

evinion that it expressed earlier, that a jury question was

raised and that the defendant was not entitled to a directed

verdict.

— “an

The motions for judgment notwithstanding the verdict

or in the alternative for a new trial or to amend the judg-

ment are denied.

Done and entered at Sioux Falls, South Dakota, this

18th day of December, 1978.

By The Court:

/s/ Fred J. Nichol

Chief Judge

UNITED STATES DISTRICT COURT

DISTRICT OF SOUTH DAKOTA

SOUTHERN DIVISION

Gerorce ARNOTT,

Plaintiff,

Civ. No. 74-4035 vs.

THe American Or Company, a Corporation,

Defendant.

JUDGMENT

[Filed September 7, 1978]

This action came on for trial before the Court and a

jury, the Honorable Fred J. Nichol, District Judge, pre-

siding, and the issues having been duly tried and the jury

having duly rendered its verdict in favor of the Plaintiff,

George Arnott, and against the Defendant, The American

Oil Company, and the jury further having answered all in-

terrogatories submitted to it in the affirmative, thereby

finding in favor of said Plaintiff and against said De-

fendant on all theories of recovery submitted to it,

=e

It Is Hereby Ordered And Adjudged that the Plain-

tiff recover of the Defendant threefold the sum of One

Hundred Thousand Dollars ($100,000.00), for a total of

Three Hundred Thousand Dollars ($300,000.00), all as pro-

vided under Section 4 of the Clayton Act 15 U.S.C. $15, with

interest thereon as provided by law, and a reasonable at-

torney’s fee in the sum of $7,595.70, said sum to be deter-

mined and approved by the Court at a later date and in-

serted herein, and his costs of action in the amount of

$704.64, said sum to be determined by the Clerk and in-

serted herein at a later date.

It Is Further Ordered And Adjudged that the Plaintiff

recover of the Defendant the sum of Twenty-five Thousand.

Dollars ($25,000.00) punitive damages, with interest there-

on at the iaie provided by law.

Dated at Sioux Falls, South Dakota, this 7th day of

September, 1978.

By The Court:

/s/ Fred J. Nichol

Chief Judge

[Attestation ]

NOTICE OF ENTRY

Take notice that the original of this copy was filed and

entered in the office of the Clerk of the United States Dis-

trict Court for the District of South Dakota on the 7th day

of September, 1978.

/s/ William J. Sratha

Clerk

DN

Judgment now contains Attorney’s fee figure entered

1-15-79 as directed by Order of Court.

DN

Dated: 1-15-79

—

LEGISLATIVE HISTORY OF

SOUTH DAKOTA FRANCHISE ACT

ORIGINAL SENATE BILL NO. 210

STATE OF SOUTH DAKOTA

Forty-Ninth Session, Legislative Assembly, 1974

SENATE BILL NO. 210

Introduced by: Senators Kandaras, Mahan, O’Connor,

Jackson, Novotny, Hall, and Representa-

tives Linda Lea Miller, Knutson, Kolbo,

Hersrud and Curran

FOR AN ACT ENTITLED, An Act regulating the offer

and sale of franchises and providing penalties for viola-

tions therefore.

BE IT ENACTED BY THE LEGISLATURE OF THE

STATE OF SOUTH DAKOTA:

Section 1. Terms used in this Act, unless the context

clearly otherwise requires, mean:

‘(1) ‘‘Advertisement,’’ any written or printed com-

munication or any communication by recorded

telephone message, radio, television, picture or

similar means published in connection with a sale

of, or offer to sell, any franchise ; ;

(2) ‘*Director,’’ the director of the division of se-

curities ;

(3) ‘*Franchise,’’ a contract or agreement, either ex-

press or implied, whether oral or written, for a

definite or indefinite period, between two or more

persons ;

[page 2 of original bill]

(a) by which a franchisee is granted the right to

engage in the business of offering or dis-

—46e—

tributing goods or services using the fran-

chisor’s trade name, trademark, service mark,

logotype, advertising, or other commercial

symbol of related characteristics ;

(b) in which the franchisor and franchisee have

a community of interest in the marketing of

goods or services at wholesale, retail, by lease,

agreement or otherwise ; and

(c) for which the franchisee is required to pay,

directly or indirectly, a franchise fee.

[13]* Franchise does not include any business which is

operated under [14] a lease on the premises of the lessor

as long as such business [15] is incidental to the business

conducted by the lessor on such [16] premises, including,

without limitation, leased departments [17] and conces-

sions. Notwithstanding anything in this Act to [18] the

contrary, franchise shall include a contract, lease or [19]

other agreement whereby the franchisee is granted the

right [20] to market motor vehicles or motor vehicle fuel;

(4)

(5)

(6)

(7)

‘‘F'ranchisee,’’ a person to whom a franchise is

granted. Unless otherwise stated herein, franchisee

shall also include a subfranchisor ;

‘‘Franchisor,’’ a person who grants a franchise

or an area franchise.

‘‘ Area franchise,’’ any contract or agreement be-

tween a franchisor and a subfranchisor whereby

the subfranchisor is granted the right, for con-

sideration given in whole or in part for such right,

to sell or negotiate the sale of franchises in the

name or in behalf of the franchisor. Unless specifi-

cally stated otherwise, ‘‘franchise’’ includes ‘‘area

franchise’’;

‘‘Subfranchisor,’’ a person to whom an area fran-

chise is granted ;

* Lines as numbered in original bill. This paragraph amended

and enacted as SDCL 37-5A-2.

(8)

—ATa—

‘*Franchise fee,’’ any fee or charge that a fran-

chisee or subfranchisor is required to pay or

agrees to pay for the right to enter into a busi-

ness or to continue a business under a franchise

agreement, including, but not limited to, the pay-

ment either in lump sum or by installments of an

initial capital investment fee, any fee or charges

based upon a percentage of gross or net sales

whether or not referred to as royalty fees, any

payment for goods or services, or any training

fees or training school fees or charges; provided,

however, thet the following shall not be consid-

ered the payiuent of a franchise fee:

(a) The purchase of goods or agreement to pur-

chase goods at a bona fide wholesale price;

(b) The purchase of goods or agreement to pur-

chase goods on consignment, if the proceeds

remitted by the franchisee from any such

sale shall reflect only the bone fide whole-

sale price of such goods;

(c) The repayment by the franchisee of a bona

fide loan made to the franchisee from the

franchisor ;

(d) The purchase of goods or agreement to pur-

chase goods at a bona fide retail price sub-

ject to a bona fide commission or compensa-

tion plan that in substance reflects only a

bona fide wholesale transaction ;

(e) The purchase, at their fair market value, of

supplies or fixtures or an agreement to pur-

chase supplies or fixtures necessary to enter

into the business or to continue the business

under the franchise agreement;

(f) The purchase or lease, at the fair market

value, of real property or an agreement to

so purchase or lease real property necessary

to enter into the business or to continue the

business under the franchise agreement;

sill

(9) ‘‘Fraud and deceit’’ are not limited to common

law fraud and deceit;

(10) ‘‘Order,’’ a consent, authorization, approval, pro-

hibition or requirement, or other order applicable

to a specific case, issued by the director ;

(11) ‘‘Person,’’ means « natural person, corporation,

partnership, trust, or other legal entity;

(12) ‘‘Publish,’’ publicly to issue or circulate by news-

paper, mail, radio, or television, or otherwise to

disseminate to or place before the public;

(13) ‘‘Rule,’’ any published rule or regulation adopted

by the director in accordance with chapter 1-26;

(14) ‘‘Sale’’ or ‘‘sell,’’ every contract or agreement

for sale of, and every contract to sell or dispose,

of a franchise or interest in a franchise, for value;

(15) ‘‘Offer’’ or ‘‘offer to sell,’’ every attempt to offer

to dispose of, and every solicitation of an offer to

buy, a franchise or interest in a franchise for value;

(16) ‘‘ Affiliated company,’’ any company owned or con-

trolled by a person to whom affiliation is attributed,

any controlling parent company or controlled sub-

sidiary of such person, any controlled subsidiary

of a controlling parent company of such person and

any other company or person owned or controlled

by the same person or persons who own or control

the person to whom affiliation is attributed.

Section 2. No person may offer or sell any franchise in

this state unless there is an effective registration statement

on file in accordance with the provisions of this Act or

unless the franchise or transaction is exempted under sec-

tion 3 of this Act.

Section 3. The registration requirement imposed by sec-

tion 2 of this Act shall not apply to the following:

(1) The offer or sale by a franchisee of a franchise

owned by him, or the offer or sale by a subfran-

ehisor of the entire area franchise owned by him

—A9a—-

if the sale is not effected by or through a fran-

.chisor; provided, however, that no person shall

make more than one sale during any period of

twelve consecutive months of a franchise or area

franchise granted by a single franchisor. A sale is

not effected by or through a franchisor merely be-

cause a franchisor has a right to approve or dis-

approve a different franchisee ;

(2) Any transaction by an executor, administrator, sher-

iff, receiver, trustee in bankruptcy, guardian or

conservator ;

(3) Any offer or sale to a banking organization, finan-

cial organization or life insurance corporation with-

in the meanings given these terms by $§ 51-1, 52-1,

and 58-1; or

(4) Securities currently registered in this state pursu-

ant to chapter 47-31.

Section 4. An application for registration of a franchise

shall be made by filing with the director a proposed public

offering statement accompanied by a fee of one hundred

dollars. The public offering statement shall contain the

items required by section 5 to 14, inclusive of this Act, as

well as:

(1) The name of the franchisor, the name, trade name,

and trademark and service mark under which the

franchisor is doing or intends to do business, and

the name of any parent or affiliated company that

will engage in business transactions with fran-

chisees ;

(2) The franchisor’s principal business address, the

address of its agent in this state authorized to re-

ceive service of process, and a consent to service

of process as required by section 60

a

554 SENATE JOURNAL

MR. PRESIDENT:

The Committee on Commerce respectfully report that

they have had under consideration Senate Bill No. 210.

And return the same with the recommendation that said

bill be amended as follows:

1 On page 2, line 17 of the printed bill strike everything

2 after the period, and strike all of lines 18, 19 and 20.

3 On page 8 of the printed bill between lines 13 and 14

4 insert the following: ‘‘(5) All franchisors who have

5 a net worth of $10,000,000.00 or more and have had at

6 least twenty-five franchises in operation in the United

7 States for the last twenty-five years.’’

And that as so amended said bill do pass.

Respectfully submitted,

CHARLES E. DONNELLY, JR.

Chairman.

1086 SENATE JOURNAL

MR. PRESIDENT:

The Committee of Conference respectfully report that

they have had under consideration Senate Bill No. 210

and the amendments thereto made by the House, and the

disagreement of the two Houses thereon, and recommend

that on page 854 of the Senate Journal, following the line

numbered 6, insert the following:

(6) Motor vehicles, motorcycles or farm implement fran-

chises.

Respectfully submitted,

HOMER KANDARAS

JACOB J. KRULL

TOM MILLS

Committee on part of the Senate.

—jla—

LINDA LEA MILLER

GENE ROBBENNOLT

JAMES S. NELSON

Committee on part of the House.

Mr. Kandaras moved that the report of the Committee

of Conference oa House Bill No. 210 be adopted.

The question being, ‘‘Shall the Senate adopt the report

of the Committee of Conference on Senate Bill No. 210?’’

1087 “SENATE JOURNAL

And the roll being called:

There were Yeas 29

There were Nays 0

Absent and Not Voting 0

Excused 6

Those voting Yea were:

Anderson, L. Leddy Riedy

Austad Larew Ripp

Bierle Mayer Roberts

Brown Mickelson Schroder

Dunn Miller Sperry

Grams Mills Spiry

Hall Novotny Sutton

Jones Pieplow Traak

Kandaras Poppen Wollman

Krull Quintal

Those Excused were:

Anderson, B. Harding Mahan

Donnelly Jackson O’Connor

So the motion having received an affirmative vote of a ma-

jority of the Members-elect, Mr. President declared the

motion prevailed and the report of the Committee on Con-

ference on House Bill No. 210 was adopted.

—52a—

1260 HOUSE JOURNAL

REPORT OF CONFERENCE COMMITTEE

The Committee of Conference on Senate Bill No. 210

submitted the following report:

MR. SPEAKER:

The Committee of Coference respectfully report that

they have had under consideration Senate Bill No. 210 and

the amendments thereto made by the House, and the dis-

agreement of the two Houses thereon, and recommend

that on page 554 of the Senate Journal, following the line

numbered 6, insert the following:

(6) Motor vehicles, motorcycles, or farm implement

franchises.

1261 HOUSE JOURNAL

Respectfully submitted,

LINDA MILLER

GENE ROBBENOLT

JAMES S. NELSON

Committee on part of the House

HOMER KANDARAS

JACOB J. KRULL

TOM MILLS

Committee on part of the Senate

Mrs. L. Miller moved that the Report of the Conference

Committee on Senate Bill No. 210 be adopted.

The question being on Mrs. Miller’s motion.

And the roll being called:

There were Yeas 82

There were Nays 1

—53a—

SHERMAN ANTITRUST ACT

Section 1, 15 U.S.C. §1 (1970)

Every contract, combination in the form of trust or other-

wise, or conspiracy, in restraint of trade or commerce among

the several States, or with foreign nations, is hereby de-

clared to be illegal.

THE RULES OF DECISION ACT

28 U.S.C. §1652

§ 1652. State laws as rules of decision

The laws of the several states, except where the Consti-

tution or treaties of the United States or Acts of Congress

otherwise require or provide, shall be regarded as rules of

decision in civil actions in the courts of the United States,

in cases where they apply.

SOUTH DAKOTA COMPILED LAWS (SDCL)

SDCL 53-3-5. Assumption of obligation by acceptance of

benefits. A voluntary acceptance of a transaction is equiv-

alent to a consent to all the obligations arising from it in-

sofar as the facts are known or ought to be known to the

person accepting.

SDCL 57-7-37. Delay or nondelivery of goods excused by

failure of presupposed condition.—Except so far as a seller

may have assumed a greater obligation and subject to

§§57-7-35 and 57-7-36 on substituted performance, delay in

delivery or nondelivery in whole or in part by a seller who

complies with §§57-7-38 and 57-7-39 is not a breach of his

duty under a contract for sale if performance as agreed has

been made impracticable by the occurrence of a contingency

the nonoccurrence of which was a basic assumption on which

the contract was made or by compliance in good faith with

—_§49—~

any applicable foreign or domestic government regulation

or order whether or not it later proves to be invalid.

SDCL 57-7-38. Allocation of deliveries of goods—Except

so far as a seller may have assumed a greater obligation

and subject to §§57-7-35 and 57-7-36 on substituted per-

formance, where the causes mentioned in $57-7-37 affect only

a part of the seller’s capacity to perform, he must allocate

production and deliveries among his customers but may at

his option include regular customers not then under con-

tract as well as his own requirements for further manufac-

ture. He may so allocate in any manner which is fair and

reasonable.

SDCL 57-7-39. Delay or nondelivery of goods—Notice from

seller to buy>r.—Except so far as a seller may have assumed

a greater obligation and subject to §§57-7-35 and 57-7-36 on

substituted performance, the seller must notify the buyer

reasonably that there will be delay or nondelivery and, when

allocation is required under $57-7-38 of the estimated quota

thus made available for the buyer.

SDCL 57-7-40. Buyer’s remedy on claim of excuse for in-

definite delay of delivery of goods—Allocation of deliveries.

—Where the buyer receives notification of a material or

indefinite delay or an allocation justified under §§57-7-37

to 57-7-39, inclusive, he may by written notification to the

seller as to any delivery concerned, and where the prospec-

tive deficiency substantially impairs the value of the whole

contract under the provisions of this chapter relating to

breach of installment contracts (§§57-7-31 to 57-7-33, in-

clusive), then also as to the whole,

(1) Terminate and thereby discharge any unexecuted

portion of the contract; or

(2) Modify the contract by agreeing to take his avail-

able quota in substitution.

—dda—

SDOL 57-7-41. Notice from seller of delay or nondelivery

of goods—Failure of buyer to modify contract—Lapse of

contract.—If after receipt of such notification from the

seller the buyer fails so to modify the contract within a

reasonable time not exceeding thirty days the contract

lapses with respect to any deliveries affected.

SDCL 57-7-42. Remedy of buyer on claim of excuse for

delay or nondelivery of goods—Negation by agreement.—

The provisions of $§57-7-40 and 57-7-41 may not be negated

by agreement except insofar as the seller has assumed a

greater obligation under §$57-7-37 to 57-7-39, inclusive.

SOUTH DAKOTA BULK SALES ACT

SDCL 57-24-16. List of creditors—Signing—Verification—

Contents.—The list of creditors must be signed and sworn to

or affirmed by the transferor or his agent. It must contain

the names and business addresses of all creditors of the

transferor, with the amounts when known, and also the

names of all persons who are known to the transferor to

assert claims against him even though such claims are dis-

puted. If the transferor is the obligor of an outstanding

issue of bonds, debentures or the like as to which there is

an indenture trustee, the list of creditors need include only

the name and address of the indenture trustee and the ag-

gregate outstanding principal amount of the issue.

SDCL 57-24-18. Notice to creditors required.—In addition

to the requirements of §§ 57-24-15 to 57-24-17, inclusive, any

bulk transfer subject to this chapter except one made by

auction sale (§{§ 57-24-25 to 57-24-28, inclusive) is ineffective

against any creditor of the transferor unless at least ten

days before he takes possession of the goods or pays for

them, whichever happens first, the transferee gives notice

of the transfer in the manner and to the persons hereafter

provided (§§57-24-22 to 57-24-24, inclusive).

—d6a—

SOUTH DAKOTA FRANCHISE ACT

as signed into law, February 1974,

SDCL, ch. 37-5A, §§1-4

37-5A-1. Franchises subject to chapter. As used in this

chapter, unless the context clearly requires otherwise,

‘‘franchise’’ means contract or agreement, either express

or implied, whether oral or written, for a definite or in-

definite period, between two or more persons:

(1) By which a franchisee is granted the right to en-

gage in the business of offering or distributing goods

or services using the franchisor’s trade name, trade-

mark, service mark, logotype, advertising, or other

commercial symbol of related characteristics ;

(2) In which the franchisor and franchisee have a com-

munity of interest in the marketing of goods or

services at wholesale, retail, by lease, agreement or

otherwise ; and

(3) For which the franchisee is required to pay, direct-

ly or indirectly, a franchise fee.

37-5A-2. Business operated on leased premises not a fran-

chise. As-used in this chapter, the term “franchise” does

not include any business which is operated under a lease on

the premises of the lessor as long as such business is inci-

dental to the business conducted by the lessor on such prem-

ises, including, without limitation, leased departments and

concessions.

37-5A-3. Required payments constituting franchise fees.

As used in this chapter, unless the context clearly requires

otherwise, ‘‘franchise fee’’ means any fee or charge that

a franchisee or subfranchisor is required to pay or agrees

to pay for the right to enter into a business or to continue

a business under a franchise agreement, including, but not

limited to, the payment either in lump sum or by install-

ments of an initial capital investment fee, any fee or charges

—d7a—

based upon a percentage of gross or net sales whether or

not referred to as royalty fees, any payment for goods or

services, or any training fees or training school fees or

charges.

37-5A-4. Transactions not considered franchise fees. Not-

withstanding §37-5A-3, the following shall not be considered

the payment of a franchise fee:

(1) The purchase of goods or agreement to purchase

goods at a bona fide wholesale price ;

(2) The purchase of goods or agreement to purchase

goods on consignment, if the proceeds remitted by

the franchisee from any such sale shall reflect only

the bona fide wholesale price of such goods;

(3) The repayment by the franchisee of a bona fide

loan made to the franchisee from the franchisor;

(4) The purchase of goods or agreement to purchase

goods at a bona fide retail price subject to a bona

fide commission or compensation plan that in sub-

stance reflects only a bona fide wholesale trans-

action ;

(5) The purchase, at their fair market value, of supplies

or fixtures or an agreement to purchase supplies or

fixtures necessary to enter into the business or to

continue the business under the franchise agree-

ment; v

(6) The purchase or lease, at the fair market value, of

real property or an agreement to so purchase or

lease real property necessary to enter into the busi-

ness or to continue the business under the franchise

agreement.